A ‘shake-out’ is coming among mortgage lenders.


A sign hangs on a branch of Banco Santander in London, UK, Wednesday, February 3, 2010.

Simon Dawson | Bloomberg via Getty Images

Banks and other mortgage lenders have been strained this year as demand for loans has weakened, driven by interest rate hikes by the Federal Reserve.

Tim Wens, chief executive of Santander’s US division, said some companies would be forced out of the industry entirely as the reform movement dries up.

He knows: Santander – a relatively small player in the mortgage market – announced its decision to drop the product in February.

“We were the first mover here and others are now doing the same math and seeing what’s happening with the holding volumes,” Weins said in a recent interview. “For many, especially the smaller institutions, most of the mortgage volume is refinancing activity, which is drying up and has the potential to slow.

The mortgage business boomed in the first two years of the pandemic, fueled by rock-bottom financing costs and a preference for suburbs with home offices. The industry issued a record $4.4 trillion in loan volume last year, including $2.7 trillion in refinance activity, according to mortgage data and analytics provider Black Knight.

But rising interest rates and home prices have put unaffordable homes out of reach for many Americans and closed the pipeline for lenders to refinance. According to Black Knight, rating-based refinances fell 90% from last year through April.

‘As good as it gets’

Santander’s move, part of a strategic pivot to focus on high-return businesses such as auto lending franchises, now appears to be on a larger scale. Santander, which has approximately $154 billion in assets and 15,000 U.S. employees, is part of the Madrid-based World Bank, which operates in Europe and Latin America.

More recently, the biggest banks in home loans, JPMorgan Chase and Wells Fargo, have cut the ranks of mortgage officers to adjust to lower rates. And smaller non-bank providers are said to be considering selling credit servicing rights or even merging or partnering with rivals.

“The industry was pretty good the way it is,” said Wences, a three-decade banking veteran who has worked at firms including Union Bank, Wells Fargo and Nationwide.

“We looked at returns through the cycle, saw where we were going with high interest and decided to exit,” he said.

Will others follow?

While banks used to dominate the U.S. mortgage business, their role has diminished since the 2008 financial crisis, when mortgages played a central role. Instead, non-bank players like Rocket Mortgage have increased market share, less likely to be swayed by regulations that fall heavily on the big banks.

Only three of the top ten mortgage lenders by loan volume are traditional banks: Wells Fargo, JPMorgan and Bank of America.

The rest are newer players with names like United Wholesale Loans and Freedom Mortgage. Many firms have taken advantage of the pandemic’s growth to go public.

Complicating matters, banks need to plow money into technology platforms to streamline the document-intensive application process to satisfy customer needs.

And companies including JPMorgan have said that ever-increasing capital rules will force them to clean mortgages off their balance sheets, making the business less attractive.

The variable is that some banks may decide to provide loans through partners, which is what Santander is doing now; It lists Rocket Loans on its website.

“Banks ultimately have to ask themselves if they see what they’re offering as a core product,” Wences said.



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